Suppliers, Dealers Express Concerns About Stability of Industry

New studies show trade uncertainty of trade policies worry groups.

by on Mar.20, 2019

Auto dealers and suppliers are concerned about the state of the industry despite winter sales coming in as expected.

Even though sales of new vehicles have met expectations for much of the winter, a sense of unease is creeping through the auto industry, according to new surveys of suppliers and dealers.

The OESA Automotive Supplier Barometer from the Original Equipment Suppliers Association, which is a numeric measure of suppliers’ outlook on the automotive industry, continues to reflect a negative sentiment, the group reported this week.

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“There is no question that it’s going to be an interesting year. As dealers look ahead, they have a less-than-positive view of growth in the future,” said Cox Automotive Chief Economist Jonathan Smoke.

“We see the threat of tariffs potentially creating a pull-ahead affect in the near term, and then if tariffs are implemented, sales are expected to drop off dramatically. So, again this year, we are going to deal with an interesting roller coaster ride.”

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New car sales are expected to fall in 2019 as incentives used to draw in buyers in 2018 continue to disappear.

Smoke noted during the first quarter, the 2019 Cox Automotive Dealer Sentiment Index indicated auto dealers are cautiously optimistic about the market, despite lower sales. Meanwhile the pessimism found in the OESA survey is due primarily to the uncertainty in global trade policies and persistent weakness in U.S. passenger car volumes.

Despite strong economic fundamentals (i.e. low unemployment and high consumer confidence), the SBI posted a negative reading of 35, which is 15 points below a neutral level of 50, and the lowest reading since the second quarter of 2009 when the Great Recession was ending.

The current reading reflects a 22-point reversal from first quarter of 2018 when tax breaks and planned infrastructure spending pushed the SBI reading to a positive reading of 57.

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Trade policy is the most significant industry threat to automotive suppliers, according to the results from the first quarter. In addition, sub-tier material cost premiums are increasingly impacting suppliers’ profitability.

The list of concerns uncovered by the OESA survey also include tight supply chains, rising commodity prices, the impact of Section 232 and Section 301 tariffs, prospects for passage and implementation of the USMCA trade pact, as well as limited availability of skilled labor.

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“Suppliers have been remarkably resilient in the face of U.S. trade policy uncertainty,” said Mike Jackson, OESA’s executive director of Strategy and Research and author of the study. “As investment decisions approach, suppliers must proactively analyze and prepare a range of optimized solutions that can be deployed once policy outcomes are confirmed.”

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